It's been awhile since you and I visited and having been away from the markets last week, I've had to do some catching up to find out just what happened while I was away, and share with you the REAL story, that may not have been covered by the drive by media.
Something happened on Thursday, and after trying to find out "what" from the popular press, and having little success, I've been hard at work and have tried to put some pieces of the puzzle together.
What happened last Thursday to have the major indices all down roughly 3.00%?
Inquiring minds want to know. So here we go.
It is only until today that I actually start to get "caught up" on some of the things that took place and something certainly triggered investor/trader sentiment on Thursday.
The global economic backdrop is our starting point as highly anticipated overseas rate decisions were made early Thursday morning.
Perhaps CNBC provided some coverage of these decisions, announcements, but I was in no condition to watch a TV, nor listen to it last week.
And while some subscribers may have been crunching numbers from the recent quarter and getting ready for this quarter's earnings reports, they probably had the TV off, and were locked in a quiet room too.
As I type, some guest on CNBC is saying his "fundamental" tabulations have stocks "cheap" right now!
We'll see, but there were some stocks that were VERY cheap 6-months ago, (low price/earnings) that don't trade today, or are nearing the $0.00 level in quick fashion. There are some that were "expensive" (high price/earnings) that trade much higher than they did 3, or 6-months ago, and they're even more expensive today as the stock's price moves higher still.
Some observations made with various U.S. equity futures early Thursday morning show little indication of any "negative" reaction to both the London Central Bank and European Central Bank standing pat on interest rates in those parts of the world.
I've thought for a few months now that the ECB has been too hawkish on near-term inflation, perhaps too focused on just one parameter that they might not be taking in the BIG picture of the global economy and the easing of pressures.
As you will see later, today's close for the CRB Index (CRY) 358.27 -0.72% in the U.S. Market Watch is now at the 12/31/07 close. While oil is the BIGGEST weighting in this index, we should have a general observation of where things stand in time (nearly three quarters ago).
What looks somewhat "suspicious" Thursday morning, is what I would consider to be somewhat of a pre-determined bearish move in some of our volatility measures, where despite a relatively flat open for U.S equities, the VIX.X had moved above an important third-quarter level of volatility resistance at 21.44 on September 2nd, stayed there on September 3rd, and jolted higher on Thursday (09/04/08).
Was something "bad" about to happen that had put buyers/call sellers outnumbering put seller/call buyers?
CBOE Market Volatility Index (VIX) - Daily intervals
On Wednesday 09/03/08 (cursor box in chart) the VIX.X closed with a 21.43 measure, almost exactly at its current QUARTERLY Pivot (21.44). OK, not all that "alarming" but put buyers/call sellers just about even with put sellers/call buyers relative to the second quarter. Remember, a PIVOT is the mid-point of a recent period's range.
But while equities were relatively "flat" Thursday morning, you can see the VIX's next day bar opened at 22.00 and rose notably from the open.
Maybe some "smart money" new of bad things to come regarding FRE and FNM.
Or was it the EIA inventory reports about to be released on Thursday at 10:35 AM EDT (natural gas) and 11:00 AM EDT (crude oil and refined products).
Oh boy ... I won't tell you I'm caught up on all that may, or may not have taken place from that week's hurricane. But last Thursday's EIA report and today's data certainly suggests refiners "learned" from their experiences a few years back and a time line with last Thursday intra-day DOES look to have drawn a negative reaction in the equity markets that day, especially for the Dow Industrials (CVX and XOM) are heavyweights, and S&P 100 and 500 (energy and financials both heavily weighted).
As I said several weeks ago, there's a lot of number crunching going on for those "fundamental" investors. BEST to play the piano with both hands. One on the fundamentals and the other on the technicals.
Later we'll note that FedEx (NYSE:FDX) $87.86 +3.66% was updating analysts and investors as fuel prices have fallen. Gosh, so many fundamental valuations one should cover. FDX looks to be trading at a p/e ratio of 24.36. That's on BACKWARD looking 12-months earnings though. Markets tend to be FORWARD looking.
Now, last Thursday, I can't say as if I see anything "unusual" with the EIA inventory, or refinery run data. As I had said on 08/27/08, the HURRICANE implications (if any) were going to be key, but the news of damage to refineries (if any) would be the likely driver.
That's where we did see some OUT OF WHACK data today, and it sure looks as if refiners did some studying and RISK management from the 2005 hurricanes.
What I'm talking about here is today's CRUDE OIL INPUTS into refineries, which fell SHARPLY by 1,775,000 barrels per day.
Remember, while this was reported TODAY, it was as of last Friday's close.
When hurricane season arrives, you'd better have as many eyes and as many hands as you can get if you're going to trade oil, or any of its derivatives.
EIA Gross Inputs, Crude Oil Inputs, Utilization and Days Supply
See the "unusual" or "out of whack" observation in the INPUTS for the week ended 09/05/08. There's analysts out there that do NOTHING but talk to their refiner sources for up-to-the day goings on.
There was certainly some "shutting down" by refiners, or not taking on any more CRUDE OIL last week.
See "column I" and percent utilization of operable capacity? It FELL to 78.27%, an OUT OF WHACK decline of 10.41 and "column J."
The # of days supply of crude oil, based on a 4-week average of crude oil inputs and the current stockpile of crude oil (298.03 million barrels), excluding the Strategic Oil Reserve, remained rather steady at 20.3 days.
This is a quick and dirty "demand" side of US refinery.
The supply side had the EIA saying US crude oil stockpiles fell by 5.8 million barrels to 298.03 million barrels. Total gasoline stockpiles fell by 6.4 million barrels (see refinery data above to tie with lack of refining of these products), while total distillate stockpiles fell by 1.25 million barrels to 130.5 million barrels.
Subcategories of the total gasoline figures had conventional gasoline stockpiles down 3.7 million barrels to 90 million barrels and reformulated, or summer blend (almost over) falling by 117,000 barrels to 1.86 million barrels.
There are many distillate subcategories. A couple I track had ULS diesel stockpiles (<15 PPM Sulfur) falling by 1.1 million barrels to 74 million barrels. Kerosene-type jet fuel down 2.3 million barrels to 39.8 million barrels, and heating oil stockpiles (>500 PPM Sulfur) rising by 636,000 barrels to 35,972.
Heating oil stockpiles still down 15.7% from year ago levels, but refiners can crank this stuff out faster than, than, than, taxpayers can back mortgages from FRE and FNM.
But not as fast as, as, as, ECB, or LCB can cut rates due to still rather hawkish thoughts about input inflation figures.
Let's hit two, make it three birds with a stone shall we.
One is for number crunchers as they try to estimate what input costs are going to be for the upcoming quarter. The second bird is any observation of commodity price inflation, or easing. The third is why aren't stocks rallying with the dollar's renewed strength against the euro and the pound.
Beetles Balanced (from 06/30/08 Close)
Bird #1: With the iShares S&P GSCI commodity index (GSG) $54.39 +0.62% on the day, down 27.39% since the end of Q2, how's that going to impact some costs of inputs to manufacturers bottom line in Q3 and Q4?
There are many other commodities that are inputs and COSTS to a manufacturer, but you can see how busy the number crunchers are.
Bird #2: What adjustments to your inflation model has been made the past 10-weeks? Do central bankers extend this type of decline to next quarter? Get those calculators humming.
You should begin to understand the time needed for such analysis and forecasting.
Bird #3: This is perhaps "why" the dollar's strength has not yet, nor will it ever if it continues, resulted in broader major US market equities. See the P/L % column? That's since 06/30/08, or representing Q3 to date. Yes, the IWM is up 3.5% and some of the CASH holds itself firm in small caps. The DIA relatively "unchanged" so far this quarter, but QQQQ now "leads weakness" on this time interval observation, while the SPY -3.37% so far this quarter, is pulled and tugged by what has been happening with LOWER energy prices (has weighed NEGATIVE) on the "energy stocks." And of course, you know what's all taking place with financials and the credit crisis.
I mentioned FedEx (NYSE:FDX) $87.86 +3.66%, which rose today to once again probe its 200-day SMA ($88.13). The company said its about-to-be completed Q1 earnings should be $1.23/share, which is well above the company's prior guidance of $0.80-$1.00/share. Yep, fuel prices easing helps with revised higher guidance.
Well, I haven't NEARLY gotten all written that I feel I needed to, but I've just been told that I need to get the wrap in.
With S&P 500 (SPX.X) 1,232.04 +0.61%, I would view a CLOSE below 1,221 as further bearish. A CLOSE above 1,315 as sign of strength.
Inflation pressures as depicted by the CRB Index, or GSG look to be easing.
Oil's weakness is a "double-edged sword." Oil, or energy stock's prices which helped bulls during some tough times, has been a anchor of late. Gasoline prices have fallen and should help consumer and manufacturer.
Hurricane season in full swing, but it looks like refiners are going to produce what they want, when they want, and not get caught with tanks full of oil and not be able to refine if they get flooded.
Some of the "getting caught up" I did today in the OptionInvestor.com Market Monitor was too much time, but I also tried to tabulate for traders and investors how much refining capacity was in the Houston, TX portion of the gulf.
Ike's on his way.
New Long Plays
New Short Plays
Rockwell Collins - COL - cls: 49.70 chg: -1.86 stop: 51.85
Why We Like It:
Picked on September 10 at $49.70
Expeditors Intl. - EXPD - close: 34.76 chg: +1.10 stop: 36.05
EXPD is actually a new play from Tuesday night. We tried to minimize our risk with a tight stop but a late day spike on Wednesday hit our stop at $35.05. The general trend remains bearish and the current three-day consolidation looks like another bear flag. We are re-listing EXPD as a short. We would consider shorting it right here but with a stop loss at $36.05. Our target is the $30.15 mark. More aggressive traders may want to aim for support near $29.00. FYI: The P&F chart is bearish with a $22 target.
Picked on September 09 at $34.76 *re-listed
Holly Corp. - HOC - cls: 27.71 chg: +0.83 stop: 27.55
Why We Like It:
Picked on September xx at $xx.xx <-- see TRIGGER
Stericycle - SRCL - cls: 57.44 chg: +1.36 stop: 58.51
Why We Like It:
Picked on September 10 at $57.44
Long Play Updates
UltraShort Dow30 - DXD - cls: 63.19 chg: -0.43 stop: 59.90
The markets managed to stall their sell-off today but stocks were fading lower into the closing bell. The path of least resistance appears to be down for the DJIA and that should mean gains for the DXD, which will move twice the inverse of the DJIA. We would consider buying the DXD here or on a dip near $62.00. Actually a dip near $60.00 would work as well. Our short-term target is the $69.75-70.00 zone.
Picked on September 09 at $63.62
Short Play Updates
EMC Corp. - EMC - close: 14.00 change: +0.33 stop: 14.51
EMC recouped about half of its losses from yesterday but the trend remains negative. We would still consider shorts right here or readers can wait for another failed rally in the $14.35-14.50 zone. Our target is the July lows at $12.15. The Point & Figure chart is bearish with a $6.00 target.
Picked on September 09 at $13.67
Expedia - EXPE - close: 17.12 change: +0.02 stop: 18.41
Shares of EXPE remain volatile. An intraday spike hit our previous stop yesterday. Today an intraday spike lower hit our new trigger to open new bearish positions. EXPE slipped to $16.66 this morning. Our suggested entry point was $16.75. More conservative traders might want to use a tighter stop but you can already see that EXPE is delivering a bumpy ride. We have two targets. Our first target is $15.00. Our second target is $13.50. The Point & Figure chart is bearish and forecasts a $9.00 target.
Picked on September 10 at $16.75 *triggered
Genuine Parts - GPC - cls: 42.13 chg: +0.08 stop: 44.01
GPC is hovering around the $42.00-42.50 zone. Readers might want to wait for a new decline under $41.85 or $41.50 before initiating new bearish positions. Plus, more conservative traders might want to lower their stop loss closer to $43.00. Our target is the $38.50 mark. More aggressive traders may want to aim lower. The P&F chart is bearish with a $28 target. We don't see any significant levels of short interest.
Picked on August 31 at $42.42
Hologic Inc. - HOLX - close: 18.30 chg: -0.32 stop: 20.15
Target achieved. HOLX dipped to $17.90 intraday. Our first target was $18.00. The $18.00 level looks like potential support given the early August lows. We would expect a bounce. HOLX should find short-term resistance near $19.00 and again near $20.00. We hope readers took some money off the table today. Our second target is the $16.55 mark.
Picked on September 04 at $19.60 *1st target hit 9/10/08
Infosys Tech. - INFY - cls: 39.19 chg: +0.74 stop: 40.75
INFY managed a 1.9% bounce following yesterday's decline. We remain bearish on the stock and would still consider positions here. However, readers might want to watch for another failed rally under $40.00 as a new entry point. We're suggesting shorts here with a stop loss above Monday's high. We are listing two targets. Our first target is $35.05. Our second target is $33.00.
Picked on September 09 at $38.45
Merck - MRK - close: 33.52 change: -0.82 stop: 35.90
Shares of MRK were downgraded this morning and the stock sank to new six-week lows hitting $33.27. We are not suggesting new bearish positions at this time. Our target is the $32.00 level. More aggressive traders may want to aim for $30.00. The P&F chart is bearish and points to a $23 target. We don't see any significant amounts of short interest.
Picked on August 31 at $35.67
Closed Long Plays
Closed Short Plays
Expeditors Intl. - EXPD - close: 34.76 chg: +1.10 stop: 35.05
It looks like our stop loss on EXPD was too tight. An afternoon spike over $35.00 hit our stop loss at $35.05. The last three or four days in EXPD look like another bear flag pattern following its larger bear flag pattern for most of August. We're marking this as a loss but we're re-listing EXPD as a new bearish play.
Picked on September 09 at $33.66 /stopped out 35.05
Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.
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